What if NAFTA ended? These would be Canada’s hardest-hit provinces, industries

After four rounds of talks, negotiations around the North American Free Trade Agreement (NAFTA) aren’t exactly going smoothly, with proposals that could have serious implications for certain Canadian provinces.

On Tuesday, Foreign Affairs Minister Chrystia Freeland criticized a series of proposals that the United States has advanced as part of negotiations.

They are as follows:

All vehicles must have 50 per cent U.S. content to duck any tariffs, a policy that America wants to see implemented within a year
End supply management for dairy and poultry, an issue that Canada has no intention of discussing
Change the enforcement system for NAFTA’s dispute-resolution process, to make certain chapters voluntary or non-binding
Limit the ability of other countries to bid on U.S. public works contracts
Include sunset clause that could end the agreement after five years

Freeland didn’t mince words at a Tuesday news conference: “In rounds three and four, we have seen proposals that would turn back the clock on 23 years of predictability, openness and collaboration under NAFTA.”

“In some cases, these proposals run counter to WTO rules. This is troubling.”

She went on: “At the beginning of this summer, Vice-President Mike Pence told the governors gathered in Rhode Island that he believed a win-win-win outcome would be achieved in these negotiations. Canada believes that too.

“But that cannot be achieved with a winner-take-all mindset, or an approach that seeks to undermine NAFTA rather than modernize it.”

Tuesday’s press conference was an indication that it was “pretty ridiculous” to think NAFTA could be renegotiated in a month or a few sessions, when some agreements take as long as 15 years to put together, John Ries, a UBC Sauder School of Business professor who focuses on international trade, told Global News.

“This could drag on for a long time,” he said.

Of the proposals, he said the one about auto parts carries the strongest implications — particularly as these products play a major role in Ontario’s exports to the U.S.
Production of the General Motors’ CAMI Automotive facility in Ingersoll, Ontario, in 2006.

Ries estimated that auto exports make up about 65 per cent of Ontario’s exports to the U.S. — to say nothing of any other car-related products.

America’s proposal for vehicles to be made with 50 per cent U.S. parts to avoid tariffs could mean that auto companies decide to produce their vehicles south of the border instead of the Great White North, he said.

“If you opened up a new production plant or parts facility with the U.S. content requirements, a Japanese company or any company might say, Canada may be slightly better but I’m going to play it safe and open a plant in the U.S.,” Ries said.

And there could be implications for auto-dependent economies even without the rule being implemented in the first place, he added.

“There might be effects on investment, given the uncertainty of this,” Ries said.

Another U.S. proposal — the sunset clause — has raised the spectre of NAFTA falling apart completely. So did President Donald Trump two months ago, when he threatened to cancel the agreement.

It’s a matter of debate as to whether Trump, who made anti-free trade rhetoric a key focus of his campaign rhetoric, can terminate NAFTA, BMO chief economist Douglas Porter said last month.

He said there’s little question that the U.S. can leave NAFTA after giving six months notice, but it’s less clear whether Trump can make that happen on his own — members of Congress could challenge such an action, and it could be held up in lawsuits.

Nevertheless, there are potential consequences for the economies of certain provinces and industries if NAFTA is disrupted, Porter wrote.

Like Ries, he believes Ontario could be most exposed, but he said Alberta and New Brunswick could also be at a higher risk than other provinces.

The value of Alberta’s exports to the U.S. was $68.064 billion in 2016, second only to Ontario, according to Industry Canada.

Meanwhile, New Brunswick sent $9.75 billion in exports to the U.S. that year.

These economies, however, are heavily tied into oil and refined products, and it’s not certain how they’ll be affected by NAFTA negotiations.

Ries sees it as unlikely that oil could be affected.

“I don’t think the U.S. wants tariffs on oil,” he said. “They want to get their oil down to Houston.”

As for industries, Porter sees sectors such as auto parts and assembly, pulp and paper, chemicals, mining, aerospace and, possibly, oil and gas being most affected by any NAFTA disruption.

Exports of goods and services took up a 23.5 per cent share of Canada’s economy over the past year, up from just under 20 per cent prior to the Canada-U.S. Free Trade Agreement (FTA) taking effect in 1989, he added.

All in all, Porter said a “full termination of NAFTA would not be disastrous for Canada, but it certainly wouldn’t be positive.”